FOS warns about payday loan broking sites and provides other information about loan complaints

On August 19 2014, the Financial Ombudsman Service (FOS) published a raft of information on its website about payday lending. The FOS is the independent body that adjudicates on complaints where the customer and the firm cannot reach agreement, and it is experiencing significant rises in the numbers of complaints being received about these types of loans.

Firstly, the FOS published a warning about payday loan broking websites. It said that many customers were having fees taken from them by brokers who never managed to arrange a loan, and that in some cases customers were being charged multiple fees as their details were passed on to numerous other brokers.

The FOS said that 10,000 people had contacted it about credit brokers so far in 2014, double the total for 2013, although this figure is for the entire credit sector and not just for payday loan brokers. Many firms made immediate refunds as soon as they became aware of the FOS’s involvement.

The FOS also added that many customers of these brokers were misled into believing that the firm they were dealing with was actually a lender.

Senior ombudsman Juliana Francis commented:

“It’s disappointing that people who are already struggling to make ends meet are being misled into thinking that these websites will get them a loan. In too many of the cases we sort out, no loan is provided and people’s bank accounts have been charged a high fee, often multiple times. If money has been taken from your account unfairly or without warning, the good news is the ombudsman is here to help. Give us a call and we can put things right quickly.”

Secondly, almost all of the July/August issue of the Ombudsman News bulletin is devoted to payday lending. Case studies give examples of complaints the FOS has upheld against firms who: applied charges and interest unfairly on a customer in financial difficulty, took a lump sum payment that was contrary to the terms of an agreed payment plan, allowed a customer to roll over her loan some 15 times, granted a loan to a customer with mental capacity issues and granted an unaffordable loan to a customer that amounted to more than his monthly income.

Ms Francis then speaks to Ombudsman News about her experiences of payday loan complaints. She says that very few complaints concern the cost of the loan, and that grievances are much more likely to concern debt collection practices, use of Continuous Payment Authority (CPA) and the impact of a loan on a person’s credit score. One in six complaints centre around a customer saying they never took out a loan with the lender in question.

Finally, the FOS published details of people it had helped with payday loan-related issues. These included: a man who received a visit from a debt collector before the lender had tried to arrange an alternative repayment plan; a woman who was referred by FOS to a debt advice charity; a man who was receiving 12 debt collection calls per day; and a woman who signed up to a CPA without understanding the terms of the arrangement, and whose bank incorrectly refused her request to cancel the CPA.


MOJ bulletin highlights new requirements for CMCs under contract law

In its August 2014 bulletin, the Claims Management Regulator at the Ministry of Justice (MoJ), advises claims management companies (CMCs) about an important new regulatory development.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 came into force in June 2014. These regulations require CMCs to make a cancellation form available to the customer before a contract is entered into. If a company does not make such a form available, or fails to provide the contract terms and conditions prior to the start of the contract, then the 14 day cancellation period will not commence until these forms and information have been provided.

Another very important issue mentioned in the bulletin is the situation where a financial institution that has already awarded compensation to a customer then re-reviews the complaint and decides to award extra compensation. In these circumstances, the MoJ says that the CMC has no automatic right to a set percentage of the additional compensation, and that to try and claim an additional fee may be not only a breach of the MoJ’s rules, but also a criminal offence under the Fraud Act 2006. The MoJ advises CMCs that their original contract with a customer will conclude when the first tranche of redress is paid, and that should a CMC wish to claim a percentage of any additional payment, then a new contract must be drawn up.

CMCs handling complaints about packaged bank accounts are instructed not to send generic claim letters, and to tailor letters to banks to the circumstances of the individual customer. A similar instruction was given regarding payment protection insurance complaints in the December 2013 bulletin.

Mention is then made of the fact that some CMCs are still submitting invalid claims, indeed for the worst offenders the majority of their claims concern products which have never been taken out by the customer in question. Companies are warned that enforcement action could follow if they continue with this practice.

CMCs who make use of marketing stands or similar are reminded that they cannot approach passers-by and must wait for potential customers to enquire of them.

Finally, the bulletin refers to the new Conduct of Authorised Persons Rules, which take effect on October 1 2014; and the legislation to allow the MoJ to fine CMCs, which is expected to complete its passage through Parliament by the end of 2014. The new rules include: a requirement to establish that claims have a realistic chance of success before submitting them, new obligations to provide evidence to back up claims and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.


FCA warns again about credit advertising standards

On August 13 2014, financial regulator the Financial Conduct Authority (FCA) again warned firms in the consumer credit sector about their advertising standards.

The FCA said that of more than 1,500 credit promotions it had reviewed since April 1 2014, 227 were non-compliant.

A quarter of these 227 concerned payday loans and other products meeting the FCA’s definition of high cost short-term credit, with the most common issues concerning failing to disclose the representative ATR or to state required risk warnings.

Some debt management firms were said to be failing to make it clear that their services were not free of charge. Mention was also made of a logbook lender making misleading comparisons of its rates when compared to other lenders, as well as incorrectly stating that the FCA had explicitly endorsed the firm.

General criticisms included promotions that suggested applicants were guaranteed to be approved for credit, and internet search results that incorrectly implied firms are providing a government-backed service.

80% of the non-compliant promotions were digital media communications: online, text message, email etc.

Clive Adamson, director of supervision at the FCA, expressed his disappointment with the findings by saying:

“It is important that all firms ensure financial promotions are fair, clear and not misleading so that customers are able to make informed decisions. We are disappointed to see standards fall short of what we expect, particularly in the consumer credit space, four months from when we took over regulation. We believe that firms in this sector can do more to ensure financial promotions meet the standards we would expect and will continue to monitor performance in this area.”

However, the FCA does concede that the firms concerned have been quick to make amendments when informed of issues with their promotional material.

On August 6 2014, the FCA issued guidance to all authorised firms on social media marketing, highlighting that its rules apply regardless of the medium used; and that due to limits on the length of messages on certain social media platforms, they may be inappropriate for conveying detailed or complex information.

The FCA first reported on the quality of credit promotions in May 2014, when common failings were said to include:

  • Encouraging applicants to press the Apply button on a website before they have considered important information
  • Targeting under 18s
  • Incorrectly suggesting a credit product would repair the borrower’s credit rating
  • Suggesting a credit product would ‘clear’ the borrower’s debt, when in fact one form of borrowing would be replaced with another

The FCA has the power to ban financial promotions, and to take enforcement action against firms that breach its rules on promotions. It has an ongoing programme of supervision of the firms it regulates, which includes a series of visits to firms’ premises. But even if a firm is not visited by the FCA, its promotional material may still be highly visible if it is broadcast on TV or radio, or printed in a newspaper. Firms should also be aware that their website is also considered to be a financial promotion, as is an email or postal marketing campaign.


MOJ gives details in annual report of reduction in CMC numbers

On July 30 2014, the Claims Management Regulation Unit at the Ministry of Justice (MoJ) published its Annual Report.

In the press release accompanying the report, the MoJ focusses on the fact that the number of authorised claims management companies (CMCs) fell from 2,693 in April 2013 to 2,097 in March 2014. The MoJ suggests that this reduction is due to the introduction of a tougher regulatory system, involving the introduction of new rules and more resources to supervise firms.

The detail of the report reveals that, in the 12 months to April 2014, 198 CMCs had their authorisations cancelled as a result of MoJ enforcement action. Two others had their authorisations suspended, one company had conditions imposed on them, and another 240 were formally warned by the MoJ. 604 voluntarily surrendered their authorisation.

Examples given in the report of reasons for taking enforcement action included:

  • Not forwarding complaints to the Financial Ombudsman Service within the required six month time limit
  • Sending large numbers of unsolicited marketing texts
  • Providing misleading information about fees and the services that would be provided in return
  • Breaching the referral fee ban on personal injury claims

Staff numbers within the Unit have increased by almost 50% over the course of the year, giving it more resources to supervise firms and carry out enforcement actions.

According to the report, there are 1,125 CMCs handling personal injury claims, 1,014 handling financial services claims, 418 dealing with criminal injuries, 361 with employment matters, 270 with industrial injuries and 167 with housing disrepair. The area of financial services claims management is described as being “less profitable” than previously, largely due to a reduction in the number of payment protection insurance complaints.

A key section of the report is the timeline, summarising the actions taken by the MoJ during the year. These actions include:

  • April 2013 – bans were introduced on personal injury referral fees, and on offering inducements to make a claim
  • May 2013 – information was gathered from two major banks on the complaints handling practices of CMCs
  • June 2013 – the MoJ started naming CMCs under investigation or subject to enforcement action
  • July 2013 – changes to the Conduct of Authorised Persons Rules came into force
  • August 2013 – as many as 33 CMCs lost their authorisation in the same month for conduct failings
  • November 2013 – a consultation commenced on more rule changes that would affect financial services CMCs
  • December 2013 – a new guide to nuisance marketing messages was published, in association with communications watchdog Ofcom
  • March 2014 – a consultation commenced on a fines system for CMCs

The report also gives details of the reasons consumers make contact with the MoJ, which include:

  • The level of fees charged, or the service provided in return for the fee
  • Unsolicited marketing contacts
  • Delays in providing refunds or handling complaints

Kevin Rousell, head of the Claims Management Regulation Unit, said:

“We have made it very clear to businesses that we take a zero tolerance approach to any malpractice or attempts to take advantage of victims of crime. Our changes have made a clear impact, for the benefit of consumers. But no regulator can ever stand still and we are going further. The new fines we are introducing this year will give us the power to impose tough sanctions on those firms that flout the rules with much more precision, power and proportionality than ever before.”


Further blow for Financial Ltd after FCA recruitment ban

NatWest has announced that it is no longer accepting new mortgage applications from appointed representatives (ARs) of financial advisory network Financial Ltd.

This action has been taken by the bank as a result of the fact that, in July 2013, Financial Ltd, and its sister network Investments Ltd, were banned by the financial regulator, the Financial Conduct Authority (FCA), from recruiting new ARs for four months. This was the first time that the FCA had imposed this sanction on a firm.

Clearly NatWest believes that business submitted by Financial Ltd could pose an undue risk as a result of the issues identified by the FCA.

NatWest will however continue to process applications that have already been submitted, and will also accept applications from former Financial Ltd ARs who are now authorised elsewhere in the industry.

A NatWest spokesperson justified the move by saying: “As a responsible lender we take seriously the findings of the FCA and will undertake a full review of Financial Limited. Until we have completed this our decision is final and is not open to negotiation.”

But Financial Ltd chief executive Brian Galvin said: “There is no good reason for this suspension and we are working with NatWest to get it lifted.” He added that no other provider had taken this step, and that his members had not received any notice of NatWest’s action.

It remains to be seen whether any other providers will take this action in due course, whether with Financial Ltd or any other firm who have been subject to FCA action.

The failings identified by the FCA at Financial Ltd were wide-ranging, encompassing recruitment, training, supervision, file reviews and risk management; and continued over a five-year period. In summary, the regulator said that the firms treated their ARs as the end customers, rather than the clients they were servicing. Many of the products the ARs advised on were higher risk, such as unregulated collective investment schemes (UCIS), pension transfers and pension switches. ­

The FCA has also ordered Financial Ltd to conduct a historic review of its pension switch and UCIS business, and to pay compensation to affected clients.


MOJ publishes details of second quarter enforcement action

On August 14 2014, the Claims Management Regulator at the Ministry of Justice (MoJ) issued an update on its enforcement activities.

The MoJ revealed that, in the second quarter of 2014 (April to June), it visited 29 claims management companies (CMCs), carried out 124 audits, commenced 25 investigations into regulated CMCs, issued 136 warnings, cancelled the licence of two companies and refused one authorisation application.

The report goes on to reveal that the MoJ is particularly concerned about the activities of CMCs active in financial services, including those who handle payment protection insurance mis-selling claims. In this area, it has warned companies over matters such as: accepting business from unauthorised companies, issuing generic claim letters and submitting claims without taking time to substantiate them.

Mention was also made of financial CMCs who were failing to meet the rules regarding processing of claims and website marketing. A number of investigations in this area are ongoing, and one company, Morgan Bentley Ltd, lost its authorisation in June 2014 as a result of breaches of the rules in these two areas.

With regard to unathorised use of trademarks, the MoJ said it may take enforcement action against companies. It is not uncommon for a CMC’s website to list banks and other firms that they have pursued claims against, and sometimes the logos of the firms in question are displayed alongside their names, but this must be done in accordance with the law.

The next section of the report deals with unsolicited marketing messages. The MoJ has increased the number of checks it carries out on this issue, and is investigating two companies as a result. CMCs are reminded of the May 2014 special bulletin on this issue which covered issues such as: not calling persons on the Telephone Preference Service register; only sending text, email and automated voice marketing messages to those who have consented to receive them; and clearly identifying the name of the company and the nature of its services at the outset.

Finally, the report gives details of the actions the MoJ is taking to enforce the referral fee ban in personal injury cases, and the steps it is taking to combat data fraud.

New rules for CMCs will take effect on October 1 2014, and guidance on application of these new rules will be issued by the MoJ in September 2014. These rules include: a requirement to establish that claims have a realistic chance of success before submitting them, new obligations to provide evidence to back up claims and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.


Banks increase their PPI provision

The half-yearly results from the UK’s banks for the first six months of 2014 show that all of the largest institutions have once again increased their provision for mis-sold payment protection insurance (PPI).

The most eye catching piece of news in this area is that the amount set aside by Lloyds Banking Group to pay PPI redress now runs into 11 figures, at some £10.4 billion. This represents an increase of £600 million on the previous figure announced by the group. The Lloyds group includes Bank of Scotland, TSB and Halifax.

Barclays increased its provision by £900 million to £4.85 billion. Royal Bank of Scotland, which includes NatWest, announced an increase of £150 million to £3.25 billion. HSBC announced an increase of £50 million earlier in 2014, taking its total to £2.1 billion. Santander has set aside an additional £65 million, and its compensation reserves now stand at £816 million.

This means that the five largest banking groups have collectively set aside a total of £21.4 billion to pay PPI claims. Some previous estimates suggested that the industry’s final PPI compensation bill could be as much as £40 billion, but it now appears that a figure closer to £20 billion might be more realistic.

Latest figures from the regulator, the Financial Conduct Authority (FCA), show that the 24 firms who are responsible for the most PPI complaints had paid out £15.5 billion in redress up to the end of May 2014. Data from both the FCA and the independent Financial Ombudsman Service (FOS) show that PPI complaint volumes have fallen significantly in the last 12 months or so, but the numbers of complaints being received are still well in excess of those being made about other financial products.

It is now six years or more since most of the mis-sold policies came into force.  However, as the FOS will accept complaints until ‘three years from when the consumer knew, or could reasonably have known, they had cause to complain’, PPI complaints can certainly still be made. Many PPI policyholders did not realise just how unsuitable their insurance was, and in some cases were unaware they even had the cover, so it is considered that these customers will meet the above criterion.

Although it is certainly possible to make a mis-selling claim for PPI today, the FOS has reported that many of the PPI complaints it receives at present concern how the financial firm calculated the compensation payment. The FOS has indicated that it is concerned about firms failing to take account of additional charges incurred by customers as a result of taking out credit card PPI, and that firms are using ‘alternative redress’ to settle PPI claims. Alternative redress, also known as comparative redress, involves the financial firm deciding that whilst single premium PPI was indeed unsuitable, that regular premium PPI would have been suitable instead. Consequently, the firm does not offer the customer a refund of all premiums paid, and instead offers a lower amount of compensation.


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FCA fines insurer over sales practices

In August 2014, financial regulator the Financial Conduct Authority (FCA) fined Stonebridge International Insurance Limited, a subsidiary of Aegon, £8,373,600 over its failings when selling personal accident, accidental death and accidental cash plan insurance.
The fine concerns telephone sales made to customers in Germany, France, Italy and Spain, as well as in the UK.

In addition to the fine, Stonebridge faces the prospect of paying significant sums in compensation to affected customers. £400,000 in redress has already been paid, and it is estimated that almost 500,000 customers could be due a redress payment.

When selling the policies, outsourcing companies used by Stonebridge encouraged customers who were wavering over whether to purchase to buy the plan anyway and make use of the cancellation period if desired. However, when customers tried to cancel, they were then actively discouraged from doing so, and staff were financially rewarded for preventing cancellations. Some customers who wished to cancel were persuaded to take reduced cover instead, but here they were not given sufficient information about the revised policy terms.

Although the policies were being sold by outsourcing companies, they did so using a sales script designed by Stonebridge. These scripts were designed to direct customers towards costlier and more comprehensive forms of insurance, whether the customers needed this or not.

When selling the cover, the outsourcing companies failed to state that they were acting on behalf of Stonebridge at the start of the call, did not properly explain the extent of the limitations and exclusions on the plan (or on occasions gave incorrect or misleading information about exclusions) and conducted the calls too quickly to allow customers to digest information. Many customers were not informed of extra charges they would incur as a result of their chosen payment method.

Reviews by Stonebridge of sales made by the outsourcing companies were limited, and reference is made in the FCA’s Final Notice to the compliance department being ‘under-resourced’. All Stonebridge’s compliance monitoring activity took place remotely in the UK, with no visits being made to the European offices, and there was no monitoring of any kind of the German and Italian activities between April 2011 and December 2012.

Although each European outsourcing operation did carry out their own internal monitoring, this was often of poor quality. One example is that quality assurance of sales calls in France consisted simply of listening to the first five minutes of each call, rather than the entire conversation.

No management information regarding the sales was reviewed by Stonebridge, and on one occasion Stonebridge failed to identify that an outsourcing company had amended a previously approved script.

The FCA noted that Stonebridge purposely targeted lower income customers and those without degrees and professional qualifications, meaning that their financial knowledge may have been lower than that of the average customer.

Tracey McDermott, FCA director of enforcement and financial crime said of the firm’s actions:

“Customers are entitled to expect firms to provide them with fair and balanced information to enable them to make the right choices about the product that is right for them. Stonebridge failed to do this.”

Stonebridge has now ceased selling the products covered by this action. The firm is also said to have put in place new arrangements for monitoring its outsourcing companies, and according to the Final Notice, has “comprehensively revised its governance structure.”


FCA issues guidance on social media financial promotions

In August 2014, the Financial Conduct Authority (FCA) announced guidance on social media marketing for firms it regulates.

Many firms are understandably keen to use social media for promotional purposes, as so many potential customers now use Facebook, Twitter, LinkedIn, YouTube and the like. However, the message from the FCA’s guidance is clear, in that the limitations of any particular form of social media cannot be used as an excuse for failing to follow the FCA’s financial promotions rules. Throughout the guidance, its rules are described as being ‘media neutral’, so Principle 7 about communications being ‘clear, fair and not misleading’ still apply, as do the detailed promotions rules in the COBS, MCOBS, ICOBS and CONC sourcebooks.

One of the main limitations of social media is that the size and length of messages are often limited, for example Twitter posts are restricted to 140 characters. This means that social media may be inappropriate for conveying detailed or complex information. The FCA says that firms are permitted to add images into their social media posts in order to ensure that all required information is given, but adds that any required risk warnings must appear in the body of the message and not in the image.

Adding a web link to a social media message may also not solve the problem. The FCA says that the message must be compliant with the promotions rules in its own right, regardless of the level of information provided on the signposted webpage.

The requirement for financial promotions to be clearly identifiable as such applies as much to social media as to other communication methods.

Firms are advised that the fact that a customer has chosen to follow a firm on social media, or has indicated their approval of a communication – such as ‘liking’ a Facebook post or ‘favouriting’ a tweet – does not indicate explicit consent to receive unsolicited marketing communications.

Social media promotions are likely to meet the FCA’s definition of a non-real-time promotion rather than a real-time promotion, as the extent of the interaction between the firm and the recipients is limited.

Finally, the guidance mentions two important issues regarding forwarding of social media communications, such as via re-tweeting. Firstly, if a recipient forwards a communication, the firm remains responsible for the compliance of the original communication. Secondly, before forwarding any communication received from a customer, a firm must consider whether it would fall under the financial promotions rules and thus make them responsible for its content.

Firms are thus advised to think carefully before using social media promotions. Is the medium being considered appropriate for the message that needs to be conveyed?

However, firms are reminded that the FCA defines a promotion as: ‘an invitation or inducement to engage in investment activity that is communicated in the course of business’. This means that any communication via social media which does not provide an invitation or an inducement does not need to comply with the FCA’s rules, and firms’ non-business communications via social media are also likely to be excluded.

Clive Adamson, Director of Supervision at the FCA said of the issue:

“The FCA sees positive benefits from using social media but there has to be an element of compliance. Primarily, what firms do on social media must ensure customers are at the heart of their business. Our overall approach is that financial promotions, whether on social media or traditional media, should be fair, clear and not misleading.”

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